advocacy kit

7/27/2019 Advocacy Kit

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The ESOP Association

Advocacy KitSummer2012

REALLY WANT TO HELP?

INVITE YOUR MEMBER OF CONGRESS

TO VISIT YOUR ESOP COMPANY!!

Remember: YOU ARE THE ANSWER

Since its inception in 1978, The ESOP Association has represented the interests of all corporations that

sponsor employee stock ownership plans, or ESOPs. The ESOP Association provides advocacy and

educational services on behalf of its members. Corporate membership in The ESOP Association is open

to all ESOP companies; our members range from closely held businesses to large public companies, and

include both C and S corporations, across all industries. The ESOP Association welcomes all corporate

members and pledges that our advocacy and educational initiatives will continue to serve the entire

ESOP community.


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Table of Contents____________________________________________________

Introduction: Salient Facts About Second Session, 112th Congress

Document 1: Your Government Relations Challenges, Summer 2012

Document 2: Evidence of Negative ESOP Thinking in U.S. Department of Labor

Document 2a: What to Expect as Tools to Stop Negative DOL Proposal if Issued in 2012

Document 2b: Be Prepared for Call to Action to Stop Possible Negative DOLProposal with Regard to ESOPs

Document 3: Building a Foundation of Support for ESOPs and ESOP BenefitsIn the U.S. Senate: Bi-partisan Group of Senators Introduce Pro-PrivateCompany ESOP Promotion Bill, S. 1512

Document 3a: List of Current Sponsors of S. 1512.

Document 3b: Sample Letter Seeking Co-sponsorship of S. 1512 toU.S. Senators Who Are Not Sponsors of S. 1512.

Document 4: Building a Foundation of Support for ESOPs and ESOPBenefits in the U.S. House of Representatives: Bi-partisan Group ofHouse Members Introduces Pro-private Company ESOP Promotion, H.R. 1244

Document 4a: List of Sponsors of H.R. 1244 as of June 8, 2012

Document 4b: Sample Letter Seeking Co-sponsorship of H.R. 1244 to Members ofHouse Ways and Means Committee Who Are Not Current Co-Sponsors

Document 4c: Members of House Ways and Means Committee and Addresses

Document 4d: Sample Letter Seeking Co-sponsorship of H.R. 1244 to Members ofU.S. House of Representatives Who Are Not Members of House andMeans Committee

Document 5: How to Learn Who Is My/Our Member of House of Representatives

Document 6: Write, Email, Fax, or Telephone: Which One?

Document 7: Follow Up: So How Do We Make Sure Our VoiceIs Heard?

Document 8: Be On Your Toes


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INTRODUCTIONSalient Facts About Second Session 112th Congress

The November 2010 national Congressional elections resulted in a significant number of new members ofCongress, House and Senate. In the 112

thCongress, the Republicans control the House of

Representatives, and the Democrats have less control of the Senate, where, due to a procedural quirk,60 votes, not 50, are needed to pass major legislation. On major issues in 2012, such as debt reduction

and major tax law changes, Congress is more often than not gridlocked, with sharp partisan rhetoric.

But, the key question for ESOP advocates, right, left, middle of the road, Republican, Democrat, orIndependent is given the seemingly intractable positions in Congress, what does all this mean forESOPs in 2012, the Second Session of the 112th Congress?

The best answer to this question is summarized in a speech in November by Association President J.Michael Keeling to the 2011 Las Vegas Conference and Trade Show. Go tohttp://esopassociationblog.org/tag/j-michael-keeling-speech-from-2011-las-vegas-conference-and-trade-show/ to read this speech. To listen to speech clickPart Ihttp://www.youtube.com/watch?v=S1cP-bu4xFk&list=UUDd2X4AoWSp2vXKjJXkZlTQ&index=3&feature=plcpPart IIhttp://www.youtube.com/watch?v=wL1KTcGC4Xk&list=UUDd2X4AoWSp2vXKjJXkZlTQ&index=2&feature=plcpPart IIIhttp://www.youtube.com/watch?v=vw335mBwxhA&list=UUDd2X4AoWSp2vXKjJXkZlTQ&index=1&feature=plcp

The essence of the speech is that issues that are not on the front page of newspapers, or on the 24-7 cablenews channels left wing or right wing Congress makes decisions in small groups, with somecooperation between Democrats and Republicans, and their staffs. Furthermore ESOPs are still,unfortunately, a small issue in the scheme of the U.S. economy. But the positive aspect of the fact is theESOP community can still build a foundation of supporters by taking advantage of the promotion of pro-ESOP legislative proposals, among the Republicans and Democrats. Also, the foundation can bestrengthened by having members of Congress openly oppose any regulation proposed by a federal agencythat is negative to ESOP creation and operation.

For example, see the Congressional Visit Kit to have an outline how to be most effective protecting yourcompanys ESOP.

But central to the Vegas remarks are ESOP advocates have to continue, with persistence, to expose theirESOP companies to their members of Congress, with visits to their company. (See the CongressionalCompany Visit Kit: Practical Steps for Unparalleled Results, atwww.esopassociation.org/pdfs/Congressional_visit_kit.pdf

And, we need to expose members of Congress to the overwhelming evidence that employee owners werefour times more likely to keep their jobs during the Great Recession then non-employee owners. Seehttp://esopassociationblog.org/tag/general-social-survey-results/

No matter how the move for major tax reform it will be 2013/2014 before Congress considers generaltax increase proposals the foundation to protect ESOPs must be laid now, with Congresspeoplelearning first hand about ESOP companies in their districts and state by visiting your ESOP company, andhaving more members of Congress join as co-sponsors of H.R. 1244 and S. 1512.


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DOCUMENT 1Your Government Relations Challenges

Summer 2012

The ESOP Association has for over 34 years vigorously promoted laws to encourage the creationof employee ownership through ESOPs and to facilitate the operation of the ESOP to benefitcorporations sponsoring ESOPs and ESOP participants. Similarly, over the past 34 years, theAssociation has vigorously urged Congress to defeat proposals that would impact ESOPcompanies and their employees negatively. This Advocacy Kit for the Associations membersprimarily urges members of the House to co-sponsor pro-ESOP legislation; H.R. 1244, andS. 1512, which is similar to H.R. 1244.

This kit also updates the Associations campaign to stop any Department of Labor proposal thatwould make it more likely that aggressive plaintiff attorneys would sue privately-held ESOPcompanies, would increase the costs of operating and creating ESOPs, and thus makesustainability of ESOPs less likely. (ESOP advocates recall in late 2010, DOL proposed that all

appraisers of private ESOP stock be ERISA fiduciaries. Along with other employee focusedgroups the Association vigorously protested the proposal. In particular, Senate Kelly Ayotte (R-NH) introduced S. 1232 to stop the specific ESOP provision of the proposed regulation. DOLwithdrew the proposal on September 19, 2011; but DOL leadership promised a new proposal in2012. All ESOP supporters must be ready to renew a pro-ESOP campaign if the new DOLproposal is negative to ESOP creation and operation and ESOP participants.

Following are background documents on the Associations agenda, and suggested documents tosend/leave or give Members of Congress and their staff, whether mailing a letter, visiting a DCCongressional Office, or even better, after hosting a member of Congress at an ESOP companysite.


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Document 2Evidence of Negative ESOP Thinking in Department of Labor

The atmosphere for ESOPs in the Department of Labor [DOL] has turned negative towards employeeownership in the ESOP model. (DOL enforces all ERISA laws governing ESOPs except those arisingexclusively in the Internal Revenue Code.)

An example of this atmosphere was the proposed 2010 regulation to mandate that all persons whoappraise the ESOP shares of a private company ESOP be ERISA fiduciaries to the ESOP.

While protests about the DOL October 22, 2010, proposal resulted in DOL pulling that proposal, DOLhas promised to issue a new similar proposal in early 2012. So, the smart thing for the ESOPcommunity is to be ready to spring into action as it did in 2011 if the re-issued proposal negativelyimpacts ESOPs. Why? Because, if the appraisers are an ERISA fiduciary, the impact on the ESOP plansponsor will be significant.

First and foremost, the fee charged by an appraiser would increase, as the appraiser will pass along

costs, and its increased risk to lawsuits if a fiduciary to the ESOP. Secondly, whereas currently theappraisal is to be independent, some have speculated, especially in a transaction establishing an ESOP,the appraiser would have to recommend a share price as low as possible thus leading an exitingshareholder not to sell to the ESOP. And foremost, it is felt that should ESOP share value decline,aggressive private sector litigators would sue the appraisal company and the ESOP company forperforming a faulty valuation.

It is crucial therefore, that the men and women who are leaders and employees of ESOP companies beready for any new negative DOL proposal.

Following is a list of the tools The ESOP Association will provide to ESOP advocates should DOL putforward again a negative proposal.


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Document 2aWhat to Expect as Tools to Stop Negative DOL

Proposal, if Issued in 2012

Expect suggestions to Members of House Education and Workforce Committee, to U.S. Senators, withcopies of enclosures proving ESOPs are more productive, more profitable, and more sustainable

providing locally controlled jobs, along with specific reasons to oppose any negative DOL proposedregulation in 2012.

To Read History of DOLs Negative 2010 Proposal, and Explanation

Of Its Potentially Devastating Impact on ESOPs

See These ESOP Association Postings

Click on the below

http://esopassociationblog.org/government-affairs-information/government-affairs-department-of-labor-proposed-regulation-on-the-definition-of-a-fiduciary/


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DOCUMENT 2bCall to Action to Stop Possible Negative DOL Proposal

With Regards to ESOPs

If DOL issues in 2012 a revision of its 2010 proposal to make all appraisers of private ESOP companystock ERISA fiduciaries that harms ESOP creation and operation, you will receive Calls to Action to

protest the DOL proposal with your member of Congress via e-mails, the Associations blog,LinkedIn, Facebook, and this Advocacy Kit, on the web, will be updated within days.


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DOCUMENT 3Bi-partisan Group of Senators Introduces and Sponsors

Pro-Private Company ESOP Promotion BillS. 1512

On September 6, 2011, three members of the U.S. Senate introduced S. 1512, the Promotion and Expansion ofPrivate Employee Ownership and Expansion of Private Employee Ownership and Expansion of PrivateEmployee Ownership Act of 2011. All three are members of the Senate Committee on Finance, which hasjurisdiction over all ESOP tax instances.

They were: Senators Ben Cardin (D-MD), Pat Roberts (R-KS), and Olympia Snowe (R-ME).

Since September 6, 2011, twelve Senators have joined their colleagues in sponsoring S. 1512. They areSenators Bernie Sanders (I-VT), Jerry Moran (R-KS), Mary Landrieu (D-LA), Roy Blunt (R-MO), PatrickLeahy (D-VT), Amy Klobuchar (D-MN), John Thune (R-SD), Sheldon Whitehouse (D-RI), Susan M. Collins(R-ME), Maria Cantwell (D-WA), Tim Johnson (D-SD), and Joseph I. Lieberman, (I-D).

As more ESOP advocates contact their Senators, we expect other sponsors. (The ESOP Association will write

you when a Senator from your state joins his/her colleagues taking the pro-ESOP position. Also, theAssociation will list Senators who have taken pro-ESOP positions on its website.)

Summary of S. 1512s substantive provisions are:

1. Would extend the gain deferral provisions of Internal Revenue Code Section 1042 to sales ofemployer stock to S corporation ESOPs. Section 3 of the bill would apply to sales of stockafter the date of enactment of the bill.

2. Would mandate the establishment of an S Corporation Employee Ownership AssistanceOffice by the Department of Treasury to foster increased employee ownership of S

corporations. The S Corporation Employee Ownership Assistance Office would be required toprovided education and outreach to inform people about the possibilities and benefits ofemployer ownership of S corporations and would provide technical assistance for companiesthat may be interested in forming an S corporation ESOP. The Department of Treasury wouldbe required to establish the S Corporation Employee Ownership Assistance Office within 90days after the date of enact of the bill.

3. Would permit an SBA certified small business, C or S, to be eligible for SBA programs tomaintain its eligibility after becoming majority-owned by an ESOP, if employee demographicsremain the same. Since the passage of ERISA in 1974, SBA has taken the unfair position thatwhen a small business is eligible for SBA programs becomes majority owned by an ESOP, it is

no longer eligible for SBA programs, even though the workforce remains the same or nearlythe same. Such a position has had unfair results such as a minority-owned, SBA eligiblecompany with a 100% minority workforce is no longer deemed to be so after ESOP majorityownership.


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DOCUMENT 3aCurrent List of Sponsors of S.1512

The Promotion and Expansion of PrivateEmployee Ownership Act of 2011

Original Group

Sen. Ben Cardin (D-MD)Sen. Pat Roberts (R-KS)Sen. Olympia Snowe (R-ME)

Joined as Sponsors as of June 8

Sen. Maria Cantwell (D-WA)Sen. Susan M. Collins (R-ME)Sen. Roy Blunt (R-MO)Sen. Tim Johnson (D-SD)Sen. Amy Klobuchar (D-MN)Sen. Mary Landrieu (D-LA)Sen. Patrick J. Leahy (D-VT)Sen. Joseph I. Lieberman (I-CT)Sen. Jerry Moran (R-KS)Sen. Bernie Sanders (I-VT)Sen. John Thune (R-SD)Sen. Sheldon Whitehouse (D-RI)

Consider Sending These Senators a Thank You Letter


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DOCUMENT 3bSuggested Sample Letter to U.S. Senators Who Are Not Sponsors of S. 1512

Dear Senator [__________________________________]:

On September 6, 2011, a bi-partisan group of Senators introduced S. 1512, the Promotion and

Expansion of Private Employee Ownership Act of 2011. This modest legislation would continueCongressional policies to encourage employee ownership through an employee stock ownership planor ESOP, model, especially by S corporations.

The original sponsors are Senators Cardin, Roberts, and Snowe. Since introduction Senators Landrieu,Moran, Sanders, Blunt, Leahy, Klobachur, Whitehouse, Thune, Cantwell, Collins, Johnson, andLieberman have joined them in co-sponsoring S. 1512.

Enclosed is a brief summary of the legislation.

We would respectfully ask that you review the provision of S. 1512 and consider co-sponsoring

S. 1512.

ESOPs sponsor privately-owned corporations have a very positive 35 year track record of providinglocally controlled jobs that provide significant benefits in a high performing company. The 2010General Social Survey evidences convincingly that employee owners were four times less likely to belaid off during the Great Recession than employees without ownership in the companies where theywork. See also enclose summary of evidence supporting our assertive.

Please contact [Name] [anyone at Name of Company] for any questions. Or, if you wish, you or yourstaff, may ask the representative of The ESOP Association to visit your office for a full dialogue ofquestions you may have.

Sincerely yours,

Name

Enclosures: Summary of S. 1512Background Documents on ESOPs


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Summary of Substantive Provisions of S. 1512

1. The bill would extend the gain deferral provisions of Internal Revenue Code Section 1042 tosales of employer stock to S corporation ESOPs. Section 3 of the bill would apply to sales ofstock after the date of enactment of the bill.

2. The bill would mandate the establishment of an S Corporation Employee OwnershipAssistance Office by the Department of Treasury to foster increased employee ownership of Scorporations. The S Corporation Employee Ownership Assistance Office would be required toprovided education and outreach to inform people about the possibilities and benefits ofemployer ownership of S corporations and would provide technical assistance for companiesthat may be interested in forming an S corporation ESOP. The Department of Treasury wouldbe required to establish the S Corporation Employee Ownership Assistance Office within 90days after the date of enact of the bill.

3. The bill would permit an SBA certified small business, C or S, to be eligible for SBA programs

to maintain its eligibility after becoming majority-owned by an ESOP, if employeedemographics remain the same. Since the passage of ERISA in 1974, SBA has taken the unfairposition that when a small business is eligible for SBA programs becomes majority owned byan ESOP, it is no longer eligible for SBA programs, even though the workforce remains thesame or nearly the same. Such a position has had unfair results such as a minority-owned, SBAeligible company with a 100% minority workforce is no longer deemed to be so after ESOPmajority ownership.


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Employee Ownership &

Corporate Performance

1. The Employee Ownership Foundation released convincing evidence in February 2012 from the mostprestigious social survey in the U.S., the General Social Survey (GSS), that showed employees in the U.S. whohad employee stock ownership werefour times less likely to be laid off during the Great Recession thanemployees without employee stock ownership.

Specifically, the 2010 GSS, funded primarily by the National Science Foundation and conducted by theNational Opinion Research Center at the University of Chicago, found that 3% of employees with employeestock ownership, which include the ESOP model and other forms of employee ownership, were laid off in2009-2010 compared to a 12% rate for employees without employee stock ownership.

In addition, the 2010 GSS data indicated that 13% of the employees with employee stock ownership intendedto leave their companies in the coming months whereas the rate was 24% for employees without employeestock ownership. This indicates significantly lower expected turnover for workers with employee stockownership.

Additionally, the survey found that employee ownership rates remained stable since 2006 with 17.4% of

individuals reporting they owned company stock. About 19 million U.S. citizens own stock in the companiesin which they work.

The Employee Ownership Foundation provided significant funding for the supplemental series of questions onshared capitalism in the survey. Shared capitalism is defined as broad-based employee, current or deferred,stock compensation programs, such as ESOPs (employee stock ownership plans), stock purchases, stockoptions, gain sharing, profit sharing, and bonus programs. The shared capitalism series of questions weredeveloped and analyzed by well-known employee ownership researchers, Professor Joseph Blasi and ProfessorDouglas Kruse (School of Management and Labor Relations at Rutgers University) who submitted anapplication for their inclusion in the GSS. The researchers are continuing to analyze these and other relateddata from the Survey to shed light on the role of employee stock ownership in the U.S. economy.

2. In the new book, Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options, edited by Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi, the editors listsome take away findings on shared capitalism. The book identifies employee stock ownership plans (ESOPs)as a primary model of shared capitalism in the U.S. Below are the summarized findings.

Shared capitalism is a significant part of the U.S. economic model. Shared capitalism canincrease wealth for workers at lower and middle income levels.

Shared capitalism improves the performance of firms. It is associated with greater attachment,loyalty, and willingness to work hard; lower chance of turnover; worker reports that co-workers work hard and are involved in company issues; and worker suggestions forinnovations. Shared capitalism is most effective when combined with employee involvementand decision-making and with other advanced personnel and labor policies.

Shared capitalism improves the performance of worker well-being. It is associated with

greater participation in decision-making; higher pay, benefits, and wealth; greater job security,satisfaction with influence at the workplace, trust in the firm, and assessment of management;and better labor management relations practices. Shared capitalism is most effective whencombined with employee involvement and decision-making and with other advancedpersonnel and labor practices.

Shared capitalism complements other labor policies and practices. Forms with sharedcapitalism compensation are more likely to have other worker-friendly labor policies andpractices. Combinations of shared capitalist pay and other policies, such as devolvingdecision-making to employees, wage at or above the market rate, and lower supervisorymonitoring, produce the largest benefits for workers and firms.


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The risk of shared capitalism investments in ones employer is manageable. Portfolio theorysuggests employee ownership can be part of an efficient portfolio as long as the overallportfolio is properly diversified. Most workers have modest amounts of employee ownershipwithin the ranges suggested by portfolio theory. Less risky forms of shared capitalism such ascash profit sharing and stock options where workers are paid market wages, or company stockis not financed by worker savings, can be prudently combined with riskier forms whereworkers purchase stock.

Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options,edited by Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi, The University of Chicago Press,National Bureau of Economic Research, 2010. Above information can be found on page 12.

3. In August 2010, The ESOP Association and the Employee Ownership Foundation released the results of asurvey conducted among the Associations 1,400 corporate members which confirmed positive benchmarksfor ESOPs. The eye-opening statistics of the 2010 survey are the increase in age of the ESOP and accountbalances. In 2010, the average age of the ESOP was reported to be 15 years, demonstrating ESOP companiesare sustainable. In addition, the average account balance has risen dramatically to $195,222.65; a high figurecompared to most data tracking defined contribution plans which correlates with the age of ESOPsparticipating in this years survey. And approximately 90% of members reported having retirement savingsplans in addition to the ESOP including the use of 401(k) plans, pension plans, stock purchase plans, and stockoptions. In terms of motivation and productivity, 84% of respondents agree that the ESOP improvedmotivation and productivity. The Company Survey is conducted every five years and was last completed in

2005. Prior to 2005, the survey was completed in 2000.

Also in September 2010, the Employee Ownership Foundation released the results of an extensive study itfunded that evidenced that ESOPs provide more employee benefits than non-ESOP companies. The study,which reviewed data from the Department of Labor Form 5500 on defined contribution retirement plans,found:

ESOP companies have at least one plan, the ESOP, but more than half (56%) have a secondretirement savings/defined contribution plan, likely a 401(k) plan. In comparison, the Bureau ofLabor statistics reports that 47% of companies have some sort of defined contribution plan whichshows that an ESOP company is more than likely to have two defined contribution plans than theaverage company is to have one plan.

The average ESOP company contributed $4,443 per active participant; in comparison to a non-ESOP company with a defined contribution plan which contributed on average $2,533 per activeparticipant. This study found that on average ESOP companies contributed over 75% more totheir ESOPs than other companies contributed to their primary plan.

The project was done by the National Center for Employee Ownership (NCEO).

Finally, in the summer of 2011, the Employee Ownership Foundation released its 20th Annual EconomicPerformance Survey (EPS), that evidenced a very high percentage of companies, 92.21%, declared thatcreating employee ownership through an ESOP (employee stockownership plan) was a good decision that hashelped the company.

4. In June 2008, Brent Kramer, a doctoral candidate at the City University of New York, now Ph.D., submitted

a study,Employee Ownership and Participation Effects on Firm Outcomes, that provides strong evidence thatmajority employee-owned businesses have a significant advantage over comparable traditionally-ownedbusinesses in sales per employee. The average advantage, $44,500, means that a typical 200 person ESOPfirm could be expected to have an almost $9 million annual sales advantage over its non-ESOP counterpart.Sales per employee is the total of a companys sales divided by the number of employees, and is a commonlyused measure of a companys productivity. Highlights of the study include: 1.) Using standard statisticalmethods, it was found that the average sales advantage for the ESOP firms in the study was $44,500, or anaverage of an 8.8% sales per employee advantage over their non-ESOP counterparts in the same industry andof the same size; 2.) It was found that firms that ask for non-management employee input into innovation inwork processes have a greater employee-owned advantage in sales per employee; 3.) Kramers research


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indicates the sales per employee advantage for the 50% plus ESOP companies compared to non-ESOPcompanies is less for larger employers. The Employee Ownership Foundation providing funding for theresearch and The ESOP Association contributed membership information to the study. A total of 328 ESOPfirms and over 2,000 matching non-ESOP firms were included in the study.

5. In January 2007, the co-operative relationship between the Employee Ownership Foundation and theUniversity of Pennsylvanias Center for Organizational Dynamics led to an important new and fresh studyof the effectiveness of ESOPs and employee ownership as uncovered in 30 years of scholarly research on theissue. The study, Effects of ESOP Adoption and Employee Ownership: Thirty Years of Research and

Experience, authored by Dr. Steven F. Freeman, Affiliated Faculty and Visiting Scholar in the Center forOrganizational Dynamics, Graduate Division, School of Arts and Sciences at the University of Pennsylvania,confirms what the Association has been saying for years, that employee-owned companies experienceincreased productivity, profitability, and longevity. To download the study, Effects of ESOP Adoption andEmployee Ownership: Thirty Years of Research and Experience, please visit the University of PennsylvaniasLibrary Digital Archive - http://repository.upenn.edu/od_working_papers/2/. The research was possiblethanks to a generous, unrestricted donation to the University by ESOP Association member company, AllianceHoldings Inc. of Willow Grove, PA. Alliance is also a significant donor to the Employee OwnershipFoundation, which gives significant donations to the University of Pennsylvanias Center for OrganizationalDynamics Program.

6. The most comprehensive and significant study to date of ESOP performance in closely held companies was

conducted by Dr. Joseph R. Blasi and Dr. Douglas L. Kruse, professors at the School of Management andLabor Relations at Rutgers University, and funded in part by the Employee Ownership Foundation. The study,which paired1,100 ESOP companies with 1,100 comparable non-ESOP companies and followed thebusinesses forover a decade, reported overwhelmingly positive and remarkable results indicating that ESOPsappear to increase sales, employment, and sales/employee by about 2.3% to 2.4% over what would have beenanticipated, absent an ESOP. In addition, Drs. Blasi and Kruse examined whether ESOP companies stayed inbusiness longer than non-ESOP companies and found that 77.9% of the ESOP companies followed as part ofthe survey survived as compared to 62.3% of the comparable non-ESOP companies. According to Drs. Blasiand Kruse, ESOP companies are also more likely to continue operating as independent companies over thecourse of several years. Also, it is substantially more probable that ESOP companies have other retirement-oriented benefit plans than comparable non-ESOP companies, such as defined benefit plans, 401(k) plans, andprofit sharing plans.

7. Research done by the Washington State Department of Community, Trade and Economic Development ofover 100 Washington not publicly-traded ESOP companies compared to 500 not publicly-traded non-ESOPcompanies showed that the ESOP companies paid better benefits, had twice the retirement income foremployees, and paid higher wages than their non-ESOP counterparts. Wealth and Income Consequences ofEmployee Ownership: A Comparative Study from Washington State, Kardas, Peter A., Scharf, Adria L.,Keogh, Jim, November, 1998.

8. In 1995, Douglas Kruse of Rutgers University examined several different studies between ESOPs andproductivity growth. Kruse found through an analysis of all studies that "positive and significant coefficients[are found] much more often than would be expected if there were no true relation between ESOPs andproductivity." Kruse concludes that "the average estimated productivity difference between ESOP and non-

ESOP firms is 5.3%, while the average estimated pre/post-adoption difference is 4.4% and the post-adoptiongrowth rate is 0.6% higher in ESOP firms. Kruse cites two studies as part of his research: Kumbhakar andDunbar's 1993 study of 123 public firms and Mitchell's 1990 study of 495 U.S. business units in public firms.Both reports found significant positive effects of greater productivity and profitability in the first few yearsafter a company adopted an ESOP.

For additional information about ESOP or The ESOP Association, visit the website at www.esopassociation.org,call 1-866-366-3832, or email [email protected].


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ESOP Facts &

Figures

There are approximately 10,000 ESOPs in place in the U.S., covering 10.3 million employees (10% of

the private sector workforce).

The size of a companys annual contribution to its ESOP has been found to be a key factor indetermining the extent to which ESOPs are believed to have a positive impact on employee ownersattitudes toward their work. In 2010, on average, companies contributed 12.7% annually to the ESOP.The numbers also show that 74.4% of companies are contributing 6% or more annually and 46%contribute over 10% annually to the ESOP. These contribution numbers indicate that a majority ofESOPs are making significant contributions to employee owners accounts.

The growth of ESOP formation has been influenced by federal legislation. While the rapid increase innew ESOPs in the late 1980s subsided after Congress removed certain tax incentives in 1989, theoverall number has remained steady with new plans replacing terminated ESOPs. Currently, it is

estimated that there are approximately 10,000 ESOPs in place in the U.S. However, there is no preciseway to measure this figure accurately since the overwhelming majority of ESOP companies areprivately held and do not file public reports with the SEC.

About 330 ESOPs - 3% - are in publicly traded companies.

An estimated 7,000 of the 10,000 companies have ESOPs that are large enough to be a major factor inthe corporation's strategy and culture.

Approximately 5,000 ESOP companies are majority-owned by the ESOP.

Approximately 4,000 are 100% owned by the ESOP.

About 2% of ESOP companies are unionized.

While ESOPs are found in all industries, 22% of them are in the manufacturing sector.

At least 70% of ESOP companies are or were leveraged, meaning they used borrowed funds to acquirethe employer securities held by the ESOP trustee.

An overwhelming majority of ESOP companies have other retirement and/or savings plans, such asdefined benefit pension plans or 401(k) plans, to supplement their ESOP.

Of the 10,000 employee-owned companies nationwide, fewer than 2% were financially distressed whenthey established their ESOP.

Total assets owned by U.S. ESOPs is estimated to be $869 billion at the end of 2009.

Some information obtained from the 2010 Company Survey, conducted among ESOP Association members in 2010. For

additional information about ESOPs or The ESOP Association, please visit the website atwww.esopassociation.org, call 1-

866-366-3832, or email [email protected]


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DOCUMENT 4Bi-partisan Group Introduces

Pro-Private Company ESOP Promotion Bill in House of RepresentativesH.R. 1244

On March 29, 2011, six members of the House of Representatives Committee on Ways and Means,introduced H.R. 1244, the Promotion and Expansion of Private Employee Ownership Act of 2011.

Three of the six are Republicans: they are Congressmen Reichert (WA); Boustany (LA); and Paulsen(MN). The three Democrats are Congressmen Kind (WS); Blumenauer (OR); and Pascrell (NJ). Since itsintroduction 75 House members have co-sponsored H.R. 1244.

As more ESOP advocates contact their U.S. Representatives, we expect other sponsors. (The ESOPAssociation will write you when someone from your state joins his/her colleagues taking the pro-ESOPposition. Also, the Association will list members of Congress who have taken pro-ESOP positions.)

Summary of H.R. 1244s subsection provisions are:

1. The bill would extend the gain deferral provisions of Internal Revenue Code Section 1042 to sales ofemployer stock to S corporation ESOPs. Section 3 of the bill would apply to sales of stock after thedate of enactment of the bill.

2. The bill would add a new section 200 to the Internal Revenue Code, which would allow banks todeduct 50% of the interest income received on loans made to an ESOP or an S corporation sponsoringan ESOP to purchase S corporation stock for the ESOP. Section 200 would apply only if the ESOPowns more than 50% of the stock of the S corporation after such purchase. Section 4 of the bill wouldapply to interest accrued on loans made after the date of enactment of the bill.

3. The bill would mandate the establishment of an S Corporation Employee Ownership AssistanceOffice by the Department of Treasury to foster increased employee ownership of S corporations.The S Corporation Employee Ownership Assistance Office would be required to provided educationand outreach to inform people about the possibilities and benefits of employer ownership of Scorporations and would provide technical assistance for companies that may be interested in formingan S corporation ESOP. The Department of Treasury would be required to establish the SCorporation Employee Ownership Assistance Office within 90 days after the date of enact of the bill.

4. The bill would permit an SBA certified small business, C or S, to be eligible for SBA programs tomaintain its eligibility after becoming majority-owned by an ESOP, if employee demographics remainthe same. Since the passage of ERISA in 1974, SBA has taken the unfair position that when a small

business is eligible for SBA programs becomes majority owned by an ESOP, it is no longer eligiblefor SBA programs, even though the workforce remains the same or nearly the same. Such a positionhas had unfair results such as a minority-owned, SBA eligible company with a 100% minorityworkforce is no longer deemed to be so after ESOP majority ownership.


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DOCUMENT 4aCurrent List of Sponsors of H.R. 1244

The Promotion and Expansion of PrivateEmployee Ownership Act of 2011

Original Group:Rep. David G. Reichert (R-8th-WA)

Rep. Earl Blumenauer (D-3rd

-OR)Rep. Charles W. Boustany, Jr. (R-7th-LA)Rep. Ron Kind (D-3rd-WI)Rep. Bill Pascrell, Jr. (D-8

th-NJ)

Rep. Erik P. Paulsen (R-3rd

-MN)

Joined as Sponsors Since March 29, 2011:Rep. Todd W. Akin (R-2-MO)Rep. Rodney Alexander (R-5-LA)Rep. Rick Berg (R-ATL-FL)Rep. Leonard L. Boswell (D-3-IA)

Rep. Bruce L. Braley (D-1-IA)Rep. Vern Buchanan (R-13-FL)Rep. Russ Carnahan (D-3-MO)Rep. Andre Carson (D-7-IN)Rep. Steve Chabot (R-1-OH)Rep. Emanuel Cleaver (D-5-MO)Rep. Joe Courteny (D-2-CT)Rep. John A. Culbertson (R-7-TX)Rep. Danny K. Davis (D-7-IL)Rep. Robert J. Dold (R-10-IL)Rep Michael G. Fitzpatrick (R-8-PA)

Rep. Rodney P. Frelinghuysen (R-11-NJ)Rep. J. Randy Forbes (R-4-VA)Rep. Jim Gerlach (R-6-PA)Rep. Bob Goodlatte (R-6-VA)Rep. Sam Graves (R-6-MO)Rep. Gene Green (D-29-TX)Rep. Raul M. Grijalva (D-7-AZ)Rep. Maurice Hinchey (D-22-NY)Rep. Rush D. Holt (D-12-NJ)Rep. Randy Hultgren (R-14-WI)Rep. Lynn Jenkins (R-2-KS)

Rep. Timothy V. Johnson (R-15-IL)Rep. Steve King (R-5-IA)Rep. Adam Kinzinger (R-11-IL)Rep. Tom Latham (R-4-IA)Rep. John Lewis (D-5-GA)Rep. David Loebsack (D-2-IA)Rep. Billy Long (R-7-MO)Rep. Blaine Luetkemeyer (R-9-MO)Rep. Donald A. Manzullo (D-16-IL)Rep. Tom Marino (R-10-PA)

Rep. Kenny Marchant (R-24-TX)Rep. Betty McCollum (D-4-MN)Rep James P. McGovern (D-3-MA)Rep. Michael H. Michaud (D-2-ME)Rep. Jeff Miller (R-1-FL)

Rep. Gwen Moore (D-4-WI)Rep. James P. Moran (D-8-VA)Rep. Richard E. Neal (D-2-MA)Rep. Kristi L. Noem (R-ATL-SD)Rep. Pete Olson (R-22-TX)Rep. William L. Owens (D-23-NY)Rep. Gary C. Peters (D-9-MI)Rep. Chellie Pingree (D-1-ME)Rep. Joseph R. Pitts (R-16-PA)Rep. Todd Russell Platts (R-19-PA)Rep. Denny Rehberg (R-ATL)

Rep. Reid J. Ribble (R-8-WI)Rep. David Rivera (R-25-FL)Rep. Cathy McMorris Rodgers (R-5-WA)Rep. Ileana Ros-Lehtinen (R-18-FL)Rep. Peter J. Roskam (R-6-IL)Rep. Janice D. Schakowsky (D-9-IL)Rep. Aaron Schock (R-18-IL)Rep. Allyson Y. Schwartz (D-8-PA)Rep. James F. Sensenbrenner, Jr. (R-5-WI)Rep. Pete Sessions (R-32-TX)Rep. Lee Terry (R-2-NE)

Rep. Glenn Thompson (R-5-PA)Rep. Patrick J. Tiberi (R-12-OH)Rep. Greg Walden (R-2-OR)Rep. Joe Walsh (R-8-IL)Rep. Timothy J. Walz (D-1-MN)Rep. Peter Welch (D-ATL-VT)Rep. Kevin Yoder (R-3-KS)

As of June 8, 2012


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DOCUMENT 4bSuggested Sample Letter to House Ways and Means Members

Who Are Not Co-Sponsors

Dear Representative [________________________]:

On March 29, 2011, a bi-partisan group of Ways and Means members introduced H.R. 1244, thePromotion and Expansion of Private Employee Ownership Act of 2011. This modest legislation wouldcontinue Congressional policies to encourage employee ownership through an employee stockownership plan or ESOP, model, especially by S corporations.

The original sponsors are Representatives Reichert, Kind, Boustany, Blumenauer, Paulsen andPascrell. Since then, your Ways and Means colleague Marchant, Tiberi, Roskam, Berg, Buchanan,Jenkins, Neal, Schock, and Lewis have co-sponsored. 61 other members of the House has co-sponsored as well.


We would respectfully ask that you review the provision of H.R. 1244 and consider joining with yourcolleagues as a co-sponsor.

ESOPs sponsor privately-owned corporations have a very positive 35 year track record of providinglocally controlled jobs that provide significant benefits in a high performing company. The 2010General Social Survey evidences convincingly that employee owners were four times less likely to belaid off during the Great Recession than employees without ownership in the companies where theywork. See also enclose summary of evidence supporting our assertive.

Please contact [Name] [anyone at Name of Company] for any questions. Or, if you wish, you or your

staff, may ask the representative of The ESOP Association to visit your office for a full dialogue ofquestions you may have.

Sincerely yours,

Name

Enclosures: Summary of H.R. 1244Background Documents on ESOPs


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Summary of Substantive Provisions of H.R. 1244

1. The bill would extend the gain deferral provisions of Internal Revenue Code Section 1042 tosales of employer stock to S corporation ESOPs. Section 3 of the bill would apply to sales ofstock after the date of enactment of the bill.

2. The bill would add a new section 200 to the Internal Revenue Code, which would allow banksto deduct 50% of the interest income received on loans made to an ESOP or an S corporationsponsoring an ESOP to purchase S corporation stock for the ESOP. Section 200 would applyonly if the ESOP owns more than 50% of the stock of the S corporation after such purchase.Section 4 of the bill would apply to interest accrued on loans made after the date of enactmentof the bill.

3. The bill would mandate the establishment of an S Corporation Employee OwnershipAssistance Office by the Department of Treasury to foster increased employee ownership of Scorporations. The S Corporation Employee Ownership Assistance Office would be required toprovided education and outreach to inform people about the possibilities and benefits of

employer ownership of S corporations and would provide technical assistance for companiesthat may be interested in forming an S corporation ESOP. The Department of Treasury wouldbe required to establish the S Corporation Employee Ownership Assistance Office within 90days after the date of enact of the bill.

4. The bill would permit an SBA certified small business, C or S, to be eligible for SBA programsto maintain its eligibility after becoming majority-owned by an ESOP, if employeedemographics remain the same. Since the passage of ERISA in 1974, SBA has taken the unfairposition that when a small business is eligible for SBA programs becomes majority owned byan ESOP, it is no longer eligible for SBA programs, even though the workforce remains thesame or nearly the same. Such a position has had unfair results such as a minority-owned, SBA

eligible company with a 100% minority workforce is no longer deemed to be so after ESOPmajority ownership.


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1. The Employee Ownership Foundation released convincing evidence in February 2012 from the mostprestigious social survey in the U.S., the General Social Survey (GSS), that showed employees in the U.S. who

had employee stock ownership werefour times less likely to be laid off during the Great Recession thanemployees without employee stock ownership.

Specifically, the 2010 GSS, funded primarily by the National Science Foundation and conducted by the NationalOpinion Research Center at the University of Chicago, found that 3% of employees with employee stockownership, which include the ESOP model and other forms of employee ownership, were laid off in 2009-2010compared to a 12% rate for employees without employee stock ownership.

In addition, the 2010 GSS data indicated that 13% of the employees with employee stock ownership intended toleave their companies in the coming months whereas the rate was 24% for employees without employee stockownership. This indicates significantly lower expected turnover for workers with employee stock ownership.

Additionally, the survey found that employee ownership rates remained stable since 2006 with 17.4% ofindividuals reporting they owned company stock. About 19 million U.S. citizens own stock in the companies inwhich they work.

The Employee Ownership Foundation provided significant funding for the supplemental series of questions onshared capitalism in the survey. Shared capitalism is defined as broad-based employee, current or deferred, stockcompensation programs, such as ESOPs (employee stock ownership plans), stock purchases, stock options, gainsharing, profit sharing, and bonus programs. The shared capitalism series of questions were developed andanalyzed by well-known employee ownership researchers, Professor Joseph Blasi and Professor Douglas Kruse(School of Management and Labor Relations at Rutgers University) who submitted an application for theirinclusion in the GSS. The researchers are continuing to analyze these and other related data from the Survey toshed light on the role of employee stock ownership in the U.S. economy.

2. In the new book, Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options, edited by Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi, the editors listsome take away findings on shared capitalism. The book identifies employee stock ownership plans (ESOPs) asa primary model of shared capitalism in the U.S. Below are the summarized findings.


Shared capitalism improves the performance of firms. It is associated with greater attachment,loyalty, and willingness to work hard; lower chance of turnover; worker reports that co-workerswork hard and are involved in company issues; and worker suggestions for innovations. Sharedcapitalism is most effective when combined with employee involvement and decision-makingand with other advanced personnel and labor policies.

Shared capitalism improves the performance of worker well-being. It is associated with greaterparticipation in decision-making; higher pay, benefits, and wealth; greater job security,satisfaction with influence at the workplace, trust in the firm, and assessment of management;and better labor management relations practices. Shared capitalism is most effective whencombined with employee involvement and decision-making and with other advanced personneland labor practices.

Shared capitalism complements other labor policies and practices. Forms with sharedcapitalism compensation are more likely to have other worker-friendly labor policies andpractices. Combinations of shared capitalist pay and other policies, such as devolving decision-


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making to employees, wage at or above the market rate, and lower supervisory monitoring,produce the largest benefits for workers and firms.

The risk of shared capitalism investments in ones employer is manageable. Portfolio theorysuggests employee ownership can be part of an efficient portfolio as long as the overallportfolio is properly diversified. Most workers have modest amounts of employee ownershipwithin the ranges suggested by portfolio theory. Less risky forms of shared capitalism such ascash profit sharing and stock options where workers are paid market wages, or company stock is

not financed by worker savings, can be prudently combined with riskier forms where workerspurchase stock.

Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options,edited by Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi, The University of Chicago Press,National Bureau of Economic Research, 2010. Above information can be found on page 12.

3. In August 2010, The ESOP Association and the Employee Ownership Foundation released the results of asurvey conducted among the Associations 1,400 corporate members which confirmed positive benchmarks forESOPs. The eye-opening statistics of the 2010 survey are the increase in age of the ESOP and account balances.In 2010, the average age of the ESOP was reported to be 15 years, demonstrating ESOP companies aresustainable. In addition, the average account balance has risen dramatically to $195,222.65; a high figurecompared to most data tracking defined contribution plans which correlates with the age of ESOPs participating

in this years survey. And approximately 90% of members reported having retirement savings plans in additionto the ESOP including the use of 401(k) plans, pension plans, stock purchase plans, and stock options. In termsof motivation and productivity, 84% of respondents agree that the ESOP improved motivation and productivity.The Company Survey is conducted every five years and was last completed in 2005. Prior to 2005, the surveywas completed in 2000.

Also in September 2010, the Employee Ownership Foundation released the results of an extensive study itfunded that evidenced that ESOPs provide more employee benefits than non-ESOP companies. The study,which reviewed data from the Department of Labor Form 5500 on defined contribution retirement plans, found:

ESOP companies have at least one plan, the ESOP, but more than half (56%) have a secondretirement savings/defined contribution plan, likely a 401(k) plan. In comparison, the Bureau ofLabor statistics reports that 47% of companies have some sort of defined contribution plan which

shows that an ESOP company is more than likely to have two defined contribution plans than theaverage company is to have one plan.

The average ESOP company contributed $4,443 per active participant; in comparison to a non-ESOP company with a defined contribution plan which contributed on average $2,533 per activeparticipant. This study found that on average ESOP companies contributed over 75% more to theirESOPs than other companies contributed to their primary plan.


Finally, in the summer of 2011, the Employee Ownership Foundation released its 20th Annual EconomicPerformance Survey (EPS), that evidenced a very high percentage of companies, 92.21%, declared that creatingemployee ownership through an ESOP (employee stockownership plan) was a good decision that has helped

the company.

4. In June 2008, Brent Kramer, a doctoral candidate at the City University of New York, now Ph.D., submitted astudy,Employee Ownership and Participation Effects on Firm Outcomes, that provides strong evidence thatmajority employee-owned businesses have a significant advantage over comparable traditionally-ownedbusinesses in sales per employee. The average advantage, $44,500, means that a typical 200 person ESOP firmcould be expected to have an almost $9 million annual sales advantage over its non-ESOP counterpart. Salesper employee is the total of a companys sales divided by the number of employees, and is a commonly usedmeasure of a companys productivity. Highlights of the study include: 1.) Using standard statistical methods, itwas found that the average sales advantage for the ESOP firms in the study was $44,500, or an average of an


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8.8% sales per employee advantage over their non-ESOP counterparts in the same industry and of the same size;2.) It was found that firms that ask for non-management employee input into innovation in work processes havea greater employee-owned advantage in sales per employee; 3.) Kramers research indicates the sales peremployee advantage for the 50% plus ESOP companies compared to non-ESOP companies is less for largeremployers. The Employee Ownership Foundation providing funding for the research and The ESOPAssociation contributed membership information to the study. A total of 328 ESOP firms and over 2,000matching non-ESOP firms were included in the study.

5. In January 2007, the co-operative relationship between the Employee Ownership Foundation and theUniversity of Pennsylvanias Center for Organizational Dynamics led to an important new and fresh study ofthe effectiveness of ESOPs and employee ownership as uncovered in 30 years of scholarly research on theissue. The study, Effects of ESOP Adoption and Employee Ownership: Thirty Years of Research andExperience, authored by Dr. Steven F. Freeman, Affiliated Faculty and Visiting Scholar in the Center forOrganizational Dynamics, Graduate Division, School of Arts and Sciences at the University of Pennsylvania,confirms what the Association has been saying for years, that employee-owned companies experience increasedproductivity, profitability, and longevity. To download the study, Effects of ESOP Adoption and EmployeeOwnership: Thirty Years of Research and Experience, please visit the University of Pennsylvanias LibraryDigital Archive - http://repository.upenn.edu/od_working_papers/2/. The research was possible thanks to agenerous, unrestricted donation to the University by ESOP Association member company, Alliance Holdings

Inc. of Willow Grove, PA. Alliance is also a significant donor to the Employee Ownership Foundation, whichgives significant donations to the University of Pennsylvanias Center for Organizational Dynamics Program.

6. The most comprehensive and significant study to date of ESOP performance in closely held companies wasconducted by Dr. Joseph R. Blasi and Dr. Douglas L. Kruse, professors at the School of Management and LaborRelations at Rutgers University, and funded in part by the Employee Ownership Foundation. The study, whichpaired1,100 ESOP companies with 1,100 comparable non-ESOP companies and followed the businesses forover a decade, reported overwhelmingly positive and remarkable results indicating that ESOPs appear toincrease sales, employment, and sales/employee by about 2.3% to 2.4% over what would have been anticipated,absent an ESOP. In addition, Drs. Blasi and Kruse examined whether ESOP companies stayed in businesslonger than non-ESOP companies and found that 77.9% of the ESOP companies followed as part of the surveysurvived as compared to 62.3% of the comparable non-ESOP companies. According to Drs. Blasi and Kruse,

ESOP companies are also more likely to continue operating as independent companies over the course of severalyears. Also, it is substantially more probable that ESOP companies have other retirement-oriented benefit plansthan comparable non-ESOP companies, such as defined benefit plans, 401(k) plans, and profit sharing plans.

7. Research done by the Washington State Department of Community, Trade and Economic Development ofover 100 Washington not publicly-traded ESOP companies compared to 500 not publicly-traded non-ESOPcompanies showed that the ESOP companies paid better benefits, had twice the retirement income foremployees, and paid higher wages than their non-ESOP counterparts. Wealth and Income Consequences ofEmployee Ownership: A Comparative Study from Washington State, Kardas, Peter A., Scharf, Adria L.,Keogh, Jim, November, 1998.

8. In 1995, Douglas Kruse of Rutgers University examined several different studies between ESOPs and

productivity growth. Kruse found through an analysis of all studies that "positive and significant coefficients[are found] much more often than would be expected if there were no true relation between ESOPs andproductivity." Kruse concludes that "the average estimated productivity difference between ESOP and non-ESOP firms is 5.3%, while the average estimated pre/post-adoption difference is 4.4% and the post-adoptiongrowth rate is 0.6% higher in ESOP firms. Kruse cites two studies as part of his research: Kumbhakar andDunbar's 1993 study of 123 public firms and Mitchell's 1990 study of 495 U.S. business units in public firms.Both reports found significant positive effects of greater productivity and profitability in the first few years aftera company adopted an ESOP.

For additional information about ESOP or The ESOP Association, visit the website at www.esopassociation.org,call 1-866-366-3832, or email [email protected].


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ESOP Facts &

Figures

There are approximately 10,000 ESOPs in place in the U.S., covering 10.3 million employees (10% of

the private sector workforce).

The size of a companys annual contribution to its ESOP has been found to be a key factor indetermining the extent to which ESOPs are believed to have a positive impact on employee ownersattitudes toward their work. In 2010, on average, companies contributed 12.7% annually to the ESOP.The numbers also show that 74.4% of companies are contributing 6% or more annually and 46%contribute over 10% annually to the ESOP. These contribution numbers indicate that a majority ofESOPs are making significant contributions to employee owners accounts.

The growth of ESOP formation has been influenced by federal legislation. While the rapid increase innew ESOPs in the late 1980s subsided after Congress removed certain tax incentives in 1989, theoverall number has remained steady with new plans replacing terminated ESOPs. Currently, it is

estimated that there are approximately 10,000 ESOPs in place in the U.S. However, there is no preciseway to measure this figure accurately since the overwhelming majority of ESOP companies areprivately held and do not file public reports with the SEC.


An estimated 7,000 of the 10,000 companies have ESOPs that are large enough to be a major factor inthe corporation's strategy and culture.







Of the 10,000 employee-owned companies nationwide, fewer than 2% were financially distressed whenthey established their ESOP.






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DOCUMENT 4cMembers of House Ways and Means

*Already Sponsored H.R. 1244(Consider Saying Thank You to these House Members)

Below are Members of House Ways and Means Committee with their office building listed. All are U.S. House oRepresentatives. To send letters use the address below. City, state and zip are the same for all. (Washington, DC

20515) *Means they have already sponsored H.R. 1244.

Rep. Dave Camp (R-MI-4th), Chairman, 341 Cannon House Office BuildingRep. Sander Levin (D-MI-12

th), Ranking Member, 1236 Longworth House Office Building

*Rep Rick Berg (R-ND-ATL), 323 Cannon House Office BuildingRep. Shelley Berkley (D-NV-1st), 405 Cannon House Office BuildingRep. Diane Black (R-TN-6

th), 1511 Longworth House Office Building

*Rep. Earl Blumenauer (D-OR-3rd), 1502 Longworth House Office Building

*Rep. Charles W. Boustany, Jr. (R-LA-7th), 1431 Longworth House Office Building

Rep. Kevin Brady (R-TX-8th), 301 Cannon House Office Building*Rep. Vern Buchanan (R-FL-13

th), 221 Cannon House Office Building

Rep. Joseph Crowley (D-NY-7th), 2404 Rayburn House Office BuildingRep. Geoff Davis (R-KY-4th), 1119 Longworth House Office BuildingRep. Lloyd Doggett (D-TX-25

th), 201 Cannon House Office Building

*Rep. Jim Gerlach (R-PA-6th), 2442 Rayburn House Office Building

*Rep. Lynn Jenkins (R-KS-2nd), 1122 Longworth House Office BuildingRep. Sam Johnson (R-TX-3

rd), 1211 Longworth House Office Building

*Rep. Ron Kind (D-WI-3rd), 1406 Longworth House Office BuildingRep. John B. Larson (D-CT-1

st), 1501 Longworth House Office Building

*Rep. John Lewis (D-GA-5th), 543 Cannon House Office Building

*Rep. Kenny Marchant (R-TX-24th), 1110 Longworth House Office BuildingRep. Jim McDermott (D-WA-7th), 1035 Longworth House Office Building

*Rep. Richard E. Neal (D-MA-2nd

), 2208 Rayburn House Office BuildingRep. Devin Nunes (R-CA-21st), 1013 Longworth House Office Building

*Rep. Bill Pascrell, Jr. (D-NJ-8th), 2370 Rayburn House Office Building

*Rep. Erik Paulsen (R-MN-3rd), 127 Cannon House Office BuildingRep. Tom Price (R-GA-6th), 403 Cannon House Office BuildingRep. Charles B. Rangel (D-NY-15

th), 2354 Rayburn House Office Building

Rep. Tom Reed (R-NY-29th

), 1037 Longworth House Office Building

*Rep. Dave G. Reichert (R-WA-8th), 1730 Longworth House Office Building

*Rep. Peter J. Roskam (R-IL-6th), 227 Cannon House Office BuildingRep. Paul D. Ryan (R-WI-1

st), 1233 Longworth House Office Building

*Rep. Aaron Schock (R-IL-18th), 328 Cannon House Office BuildingRep. Adrian Smith (R-NE-3rd), 503 Cannon House Office BuildingRep. Mike Thompson (D-CA-1

st), 231 Cannon House Office Building

*Rep. Pat Tiberi (R-OH-12th), 106 Cannon House Office BuildingRep. Becerra Xavier (D-CA-31st), 1226 Longworth House Office Building

As of June 8, 2012.


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DOCUMENT 4dSuggested Sample Letter to House Members Not on Ways and Means

Dear Representative [__________________________________]:

On March 29, 2011, a bi-partisan group of Ways and Means members introduced H.R. 1244, the Promotion and

Expansion of Private Employee Ownership Act of 2011. This modest legislation would continue Congressionalpolicies to encourage employee ownership through an employee stock ownership plan or ESOP, model, especiallyby S corporations.

The original sponsors are Representatives Reichert, Kind, Boustany, Blumenauer, Paulsen and Pascrell. Sinceintroduction 70 members of the House have joined efforts to promote private company employee ownership.


We would respectfully ask that you review the provision of H.R. 1244 and consider co-sponsoring H.R. 1244.

ESOPs sponsor privately-owned corporations have a very positive 35 year track record of providing locallycontrolled jobs that provide significant benefits in a high performing company. The 2010 General Social Surveyevidences convincingly that employee owners were four times less likely to be laid off during the Great Recessionthan employees without ownership in the companies where they work. See also enclose summary of evidencesupporting our assertive.

Please contact [Name] [anyone at Name of Company] for any questions. Or, if you wish, you or your staff, mayask the representative of The ESOP Association to visit your office for a full dialogue of questions you may have.

Sincerely yours,

Name

Enclosures: Summary of H.R. 1244Background Documents on ESOPs


26/34

Summary of Substantive Provisions of H.R. 1244

1. The bill would extend the gain deferral provisions of Internal Revenue Code Section 1042 to sales ofemployer stock to S corporation ESOPs. Section 3 of the bill would apply to sales of stock after the date oenactment of the bill.

2. The bill would add a new section 200 to the Internal Revenue Code, which would allow banks to deduct50% of the interest income received on loans made to an ESOP or an S corporation sponsoring an ESOP tpurchase S corporation stock for the ESOP. Section 200 would apply only if the ESOP owns more than50% of the stock of the S corporation after such purchase. Section 4 of the bill would apply to interestaccrued on loans made after the date of enactment of the bill.

3. The bill would mandate the establishment of an S Corporation Employee Ownership Assistance Officeby the Department of Treasury to foster increased employee ownership of S corporations. The SCorporation Employee Ownership Assistance Office would be required to provided education and outreacto inform people about the possibilities and benefits of employer ownership of S corporations and wouldprovide technical assistance for companies that may be interested in forming an S corporation ESOP. The

Department of Treasury would be required to establish the S Corporation Employee Ownership AssistanceOffice within 90 days after the date of enact of the bill.

4. The bill would permit an SBA certified small business, C or S, to be eligible for SBA programs to maintaiits eligibility after becoming majority-owned by an ESOP, if employee demographics remain the same.Since the passage of ERISA in 1974, SBA has taken the unfair position that when a small business iseligible for SBA programs becomes majority owned by an ESOP, it is no longer eligible for SBAprograms, even though the workforce remains the same or nearly the same. Such a position has had unfairresults such as a minority-owned, SBA eligible company with a 100% minority workforce is no longerdeemed to be so after ESOP majority ownership.


27/34



1. The Employee Ownership Foundation released convincing evidence in February 2012 from the mostprestigious social survey in the U.S., the General Social Survey (GSS), that showed employees in the U.S. whohad employee stock ownership werefour times less likely to be laid off during the Great Recession thanemployees without employee stock ownership.

Specifically, the 2010 GSS, funded primarily by the National Science Foundation and conducted by the NationalOpinion Research Center at the University of Chicago, found that 3% of employees with employee stockownership, which include the ESOP model and other forms of employee ownership, were laid off in 2009-2010compared to a 12% rate for employees without employee stock ownership.

In addition, the 2010 GSS data indicated that 13% of the employees with employee stock ownership intended toleave their companies in the coming months whereas the rate was 24% for employees without employee stockownership. This indicates significantly lower expected turnover for workers with employee stock ownership.

Additionally, the survey found that employee ownership rates remained stable since 2006 with 17.4% ofindividuals reporting they owned company stock. About 19 million U.S. citizens own stock in the companies inwhich they work.

The Employee Ownership Foundation provided significant funding for the supplemental series of questions onshared capitalism in the survey. Shared capitalism is defined as broad-based employee, current or deferred, stockcompensation programs, such as ESOPs (employee stock ownership plans), stock purchases, stock options, gainsharing, profit sharing, and bonus programs. The shared capitalism series of questions were developed andanalyzed by well-known employee ownership researchers, Professor Joseph Blasi and Professor Douglas Kruse(School of Management and Labor Relations at Rutgers University) who submitted an application for theirinclusion in the GSS. The researchers are continuing to analyze these and other related data from the Survey toshed light on the role of employee stock ownership in the U.S. economy.

2. In the new book, Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options, edited by Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi, the editors list sometake away findings on shared capitalism. The book identifies employee stock ownership plans (ESOPs) as aprimary model of shared capitalism in the U.S. Below are the summarized findings.


Shared capitalism improves the performance of firms. It is associated with greater attachment,loyalty, and willingness to work hard; lower chance of turnover; worker reports that co-workerswork hard and are involved in company issues; and worker suggestions for innovations. Sharedcapitalism is most effective when combined with employee involvement and decision-makingand with other advanced personnel and labor policies.

Shared capitalism improves the performance of worker well-being. It is associated with greaterparticipation in decision-making; higher pay, benefits, and wealth; greater job security,satisfaction with influence at the workplace, trust in the firm, and assessment of management; andbetter labor management relations practices. Shared capitalism is most effective when combinedwith employee involvement and decision-making and with other advanced personnel and laborpractices.

Shared capitalism complements other labor policies and practices. Forms with shared capitalismcompensation are more likely to have other worker-friendly labor policies and practices.Combinations of shared capitalist pay and other policies, such as devolving decision-making toemployees, wage at or above the market rate, and lower supervisory monitoring, produce thelargest benefits for workers and firms.


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The risk of shared capitalism investments in ones employer is manageable. Portfolio theorysuggests employee ownership can be part of an efficient portfolio as long as the overall portfoliois properly diversified. Most workers have modest amounts of employee ownership within theranges suggested by portfolio theory. Less risky forms of shared capitalism such as cash profitsharing and stock options where workers are paid market wages, or company stock is notfinanced by worker savings, can be prudently combined with riskier forms where workerspurchase stock.

Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options,edited by Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi, The University of Chicago Press, NationalBureau of Economic Research, 2010. Above information can be found on page 12.

3. In August 2010, The ESOP Association and the Employee Ownership Foundation released the results of asurvey conducted among the Associations 1,400 corporate members which confirmed positive benchmarks forESOPs. The eye-opening statistics of the 2010 survey are the increase in age of the ESOP and account balances.In 2010, the average age of the ESOP was reported to be 15 years, demonstrating ESOP companies aresustainable. In addition, the average account balance has risen dramatically to $195,222.65; a high figurecompared to most data tracking defined contribution plans which correlates with the age of ESOPs participatingin this years survey. And approximately 90% of members reported having retirement savings plans in addition tothe ESOP including the use of 401(k) plans, pension plans, stock purchase plans, and stock options. In terms ofmotivation and productivity, 84% of respondents agree that the ESOP improved motivation and productivity. TheCompany Survey is conducted every five years and was last completed in 2005. Prior to 2005, the survey wascompleted in 2000.

Also in September 2010, the Employee Ownership Foundation released the results of an extensive study it fundedthat evidenced that ESOPs provide more employee benefits than non-ESOP companies. The study, whichreviewed data from the Department of Labor Form 5500 on defined contribution retirement plans, found:

ESOP companies have at least one plan, the ESOP, but more than half (56%) have a secondretirement savings/defined contribution plan, likely a 401(k) plan. In comparison, the Bureau ofLabor statistics reports that 47% of companies have some sort of defined contribution plan whichshows that an ESOP company is more than likely to have two defined contribution plans than theaverage company is to have one plan.

The average ESOP company contributed $4,443 per active participant; in comparison to a non-ESOPcompany with a defined contribution plan which contributed on average $2,533 per active participant.This study found that on average ESOP companies contributed over 75% more to their ESOPs thanother companies contributed to their primary plan.


Finally, in the summer of 2011, the Employee Ownership Foundation released its 20th Annual EconomicPerformance Survey (EPS), that evidenced a very high percentage of companies, 92.21%, declared that creatingemployee ownership through an ESOP (employee stockownership plan) was a good decision that has helped thecompany.

4. In June 2008, Brent Kramer, a doctoral candidate at the City University of New York, now Ph.D., submitted astudy,Employee Ownership and Participation Effects on Firm Outcomes, that provides strong evidence thatmajority employee-owned businesses have a significant advantage over comparable traditionally-ownedbusinesses in sales per employee. The average advantage, $44,500, means that a typical 200 person ESOP firmcould be expected to have an almost $9 million annual sales advantage over its non-ESOP counterpart. Sales peremployee is the total of a companys sales divided by the number of employees, and is a commonly used measureof a companys productivity. Highlights of the study include: 1.) Using standard statistical methods, it was foundthat the average sales advantage for the ESOP firms in the study was $44,500, or an average of an 8.8% sales peremployee advantage over their non-ESOP counterparts in the same industry and of the same size; 2.) It was foundthat firms that ask for non-management employee input into innovation in work processes have a greateremployee-owned advantage in sales per employee; 3.) Kramers research indicates the sales per employee


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advantage for the 50% plus ESOP companies compared to non-ESOP companies is less for larger employers.The Employee Ownership Foundation providing funding for the research and The ESOP Association contributedmembership information to the study. A total of 328 ESOP firms and over 2,000 matching non-ESOP firms wereincluded in the study.

5. In January 2007, the co-operative relationship between the Employee Ownership Foundation and theUniversity of Pennsylvanias Center for Organizational Dynamics led to an important new and fresh study ofthe effectiveness of ESOPs and employee ownership as uncovered in 30 years of scholarly research on the issue.The study, Effects of ESOP Adoption and Employee Ownership: Thirty Years of Research and Experience,authored by Dr. Steven F. Freeman, Affiliated Faculty and Visiting Scholar in the Center for OrganizationalDynamics, Graduate Division, School of Arts and Sciences at the University of Pennsylvania, confirms what theAssociation has been saying for years, that employee-owned companies experience increased productivity,profitability, and longevity. To download the study, Effects of ESOP Adoption and Employee Ownership:Thirty Years of Research and Experience, please visit the University of Pennsylvanias Library Digital Archive -http://repository.upenn.edu/od_working_papers/2/. The research was possible thanks to a generous, unrestricteddonation to the University by ESOP Association member company, Alliance Holdings Inc. of Willow Grove, PA.Alliance is also a significant donor to the Employee Ownership Foundation, which gives significant donations tothe University of Pennsylvanias Center for Organizational Dynamics Program.

6. The most comprehensive and significant study to date of ESOP performance in closely held companies wasconducted by Dr. Joseph R. Blasi and Dr. Douglas L. Kruse, professors at the School of Management and LaborRelations at Rutgers University, and funded in part by the Employee Ownership Foundation. The study, whichpaired1,100 ESOP companies with 1,100 comparable non-ESOP companies and followed the businesses forovera decade, reported overwhelmingly positive and remarkable results indicating that ESOPs appear to increasesales, employment, and sales/employee by about 2.3% to 2.4% over what would have been anticipated, absent anESOP. In addition, Drs. Blasi and Kruse examined whether ESOP companies stayed in business longer than non-ESOP companies and found that 77.9% of the ESOP companies followed as part of the survey survived ascompared to 62.3% of the comparable non-ESOP companies. According to Drs. Blasi and Kruse, ESOPcompanies are also more likely to continue operating as independent companies over the course of several years.Also, it is substantially more probable that ESOP companies have other retirement-oriented benefit plans thancomparable non-ESOP companies, such as defined benefit plans, 401(k) plans, and profit sharing plans.

7. Research done by the Washington State Department of Community, Trade and Economic Development of over100 Washington not publicly-traded ESOP companies compared to 500 not publicly-traded non-ESOP companiesshowed that the ESOP companies paid better benefits, had twice the retirement income for employees, and paidhigher wages than their non-ESOP counterparts. Wealth and Income Consequences of Employee Ownership: AComparative Study from Washington State, Kardas, Peter A., Scharf, Adria L., Keogh, Jim, November, 1998.

8. In 1995, Douglas Kruse of Rutgers University examined several different studies between ESOPs andproductivity growth. Kruse found through an analysis of all studies that "positive and significant coefficients [arefound] much more often than would be expected if there were no true relation between ESOPs and productivity."Kruse concludes that "the average estimated productivity difference between ESOP and non-ESOP firms is 5.3%,while the average estimated pre/post-adoption difference is 4.4% and the post-adoption growth rate is 0.6% higherin ESOP firms. Kruse cites two studies as part of his research: Kumbhakar and Dunbar's 1993 study of 123 public

firms and Mitchell's 1990 study of 495 U.S. business units in public firms. Both reports found significant positiveeffects of greater productivity and profitability in the first few years after a company adopted an ESOP.

For additional information about ESOP or The ESOP Association, visit the website atwww.esopassociation.org, call 1-866-

366-3832, or email [email protected].


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ESOP Facts &

Figures

There are approximately 10,000 ESOPs in place in the U.S., covering 10.3 million employees (10% of theprivate sector workforce).

The size of a companys annual contribution to its ESOP has been found to be a key factor in determiningthe extent to which ESOPs are believed to have a positive impact on employee owners attitudes towardtheir work. In 2010, on average, companies contributed 12.7% annually to the ESOP. The numbers alsoshow that 74.4% of companies are contributing 6% or more annually and 46% contribute over 10%annually to the ESOP. These contribution numbers indicate that a majority of ESOPs are makingsignificant contributions to employee owners accounts.

The growth of ESOP formation has been influenced by federal legislation. While the rapid increase innew ESOPs in the late 1980s subsided after Congress removed certain tax incentives in 1989, the overallnumber has remained steady with new plans replacing terminated ESOPs. Currently, it is estimated thatthere are approximately 10,000 ESOPs in place in the U.S. However, there is no precise way to measurethis figure accurately since the overwhelming majority of ESOP companies are privately held and do notfile public reports with the SEC.


An estimated 7,000 of the 10,000 companies have ESOPs that are large enough to be a major factor in thecorporation's strategy and culture.







Of the 10,000 employee-owned companies nationwide, fewer than 2% were financially distressed when

they established their ESOP.






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DOCUMENT 5How to Learn Who Is My Member of Congress

If you dont know who your Member of Congress is, there is a very easy way to find out.

To locate your Representative in the United States House of Representatives, visit the House of

Representatives website at http://www.house.gov/ and near the top of the page, youll see a box thatsays Find Your Representative. In the box provided, enter your zip code and hit go. It will bring upa new page that lists your Representative. To visit your Representatives website, click on the name.

To find your Members of Congress through The ESOP Associations website, visithttp://www.esopassociation.org/, and click on the Government Affairs link located at the top of thepage. In the Government Affairs section, click on the Capitol Links button on the left hand side of thepage. On the Capitol Links page, you will find links to the U.S. House of Representatives.

Each state has two Senators, and this information is found at http://www.senate.gov, go to box on righthand side of home page labeled, Find Your Senators And of course you can use The ESOP

Associations home page as set for above, but click U.S. Senate under Capitol Links button.


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DOCUMENT 6Write, E-Mail, Fax, or Telephone:

Which One?

Since the advent of email, and since the Anthrax attack on Congress in 2001, when a call to actiongoes out to ESOP advocates, the question is always asked by the ESOP advocate of the national office

Should I send a letter, an email, a fax, or should I telephone?

There is no best answer, and which will be the most effective in terms of timeliness, and gettingthrough to the decision maker depends on circumstances.

But what is wrong is to assume that an email is the best way to communicate to a member of Congressand his or her staff, as data indicates that the over hundreds of millions of emails received each year bythe Congress is overwhelming, and have an impact only if, repeat,only if, the sender of the email hasreceived (1) a specific request to send to a specific person in the Congressional office the email; or (2) aprior line of communications using emails was establishedprior to taking action on the matter that is thesubject of the call to action.

If the matter is not time sensitive, in order words, the Congress and the members of Congress will not beasked to take action soon, a letter is suitable if the sender has no prior relationship with the member ofCongress and the staff member.

Whether email, or fax, or letter, is always effective to follow up with a telephone call to the staff personwho is responsible for briefing the member of Congress on tax, and ERISA laws.

Please note, the sample letters can become a script for a telephone presentation, and are obviously

suitable for use as an email, or a faxed letter or memo.

Any questions never hesitate to call, or email, an ESOP Association staff member who works onGovernment Relations matters, 202.293.2971.


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Document 7Follow-Up: How Do We Make Sure Our Voice Is Heard?

Key to making sure a message is heard by a member of Congress is follow-up. Whether youcommunicated to your member of Congress via letter, email, fax, or phone call, you have to contact heror his office again, and often again.

Lets do a little role playing.

Assume you written your member of Congress urging him or her to convey concern to the Secretary ofLabor about the negative proposal to increase the costs of private ESOP company ESOP transactionsand operations. Wait about two weeks after your written communication, and then call that office telephone number, Congressional switchboard is 202-224-3121, which will connect you to any office inthe Capitol Hill complex yes, it is old fashioned, real person operator service or you can look up amember of Congresss direct phone number on the web using www.esopassociation.org, governmentrelations, capital links, or go direct to www.house.gov, orwww.senate.gov, and use prompts to find yourmember of Congress home page.

The person answering the telephone will not be responsible for the Representatives/Senators legislativestaff work 99% of the time. So, you should ask to speak to the staff person who handles tax and/orERISA issues for the Representative/Senator. Chances are high that you will be placed into thatpersons voice mail, and what you say initially would be the same whether the person takes the call, oryou get that persons voice mail. Sample statement: Yes, I am xxxxxxx, and I am calling about aproposed reg by the Department of Labor that will have a negative impact on [Name of Company]employee stock ownership plan. I wrote/called/faxd/emaild our concerns on [date], and am followingup to learn if Representative/Senator xxxxx has had a chance to review our concerns/position. I lookforward to hearing from you.

If by chance you are talking to the staff person who handles tax and/or ERISA issues, more likely theperson will say, We have not had a chance to review this matter.

In this case say, Okay. Do you mind if I touch base with you in about 10 working days to learnRepresentative/Senator xxxxxxs reaction to our request?

At some point, whether it takes two calls, three calls, or even five calls, you will be given some kind ofanswer.

Once you have an answer consider strategizing with the national office of the Association by calling oremailing Michael Keeling, President, at 202.293.2971 [email protected].

But in the rare case where the staff person, or the Member wants to be cantankerous about ESOPs, or toargue with you, you have plenty of ammo in the enclosures in this advocacy kit, plus your own ESOPstory to rebut each and every point someone cynical about ESOPS can make.Remember, persistence wins the day, not brilliance, 90% of the time. Or, it was the tortoise that won therace, not the hare.

Also remember, any question, any time, contact The ESOP Association, government relations for

consultation to make sure your voice is heard on behalf of your ESOP and your ESOP

participants.


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Document 8Be On Your Toes

As obvious, this spring advocacy kit talks about future government action.

When will you know action of importance to ESOPs is just around the corner?

Simple, keep an eye on www.esopassociation.org for news Home Page, be on the outlook fore-bulletins from The ESOP Association, but most important follow breaking news, 24-7, 365 days a yearon our blog at http://esopassociationblog.org/